The old proverb is that when you start a business, you are usually not profitable for two years, so you may need to borrow money to reach your goals. According to the Australian Bureau of Statistics, one million Australians were self-employed as of August last year, accounting for 8.2% of all jobs.
When many are self-employed, we need to discuss the best personal loans and more. Find out here about your options and how to improve your chances to get a self-employed personal loan.
What is a self-employed personal loan?
Personal loans for the self-employed are debts that aim specifically at sole proprietors or the self-employed. The loan works the same as a regular personal loan or a caveat loan, but the application process is slightly different. It is because self-employed people often need the documents that traditional business owners may have, such as a pay slip required by many lenders when deciding to approve a loan.
When reviewing loan options, check the lending criteria of each lender to ensure you are eligible. One of the most vital things to do is increase your chances of getting a second mortgage loan approved is to take care of your paperwork and finances. Traditional bank lenders will likely need to verify at least two years of your tax returns and all sources of income, earnings, savings, assets, and losses.
What types of personal loans are available for the self-employed?
There are many best personal loans available for the self-employed. Different lenders have different lending standards, so you may need to research the type of loan you are looking for. Here are the types of loans that are typically available to the self-employed:
1. Standard Personal Loans
If eligible, self-employed individuals can obtain standard personal loans. A secured loan means providing collateral for the loan through an asset owned by the borrower (car, house, cash deposit, etc.). Unsecured loans, on the other hand, have no collateral. There are additional fees, which are, however, compensated by the profit that you make.
2. Low-doc loans
A low-doc is a shortened version of low-documentation. These loans are often aimed at the self-employed, as lenders usually need more extensive documentation. However, due to the higher risk of the lender, interest rates are often higher than regular loans, and fees are also higher.
3. Special Loans
You can obtain a personal loan designed specifically for the self-employed by contacting a lender. These types of loans are often referred to as “personal loans for ABN holders” and can be specialized depending on the work area. This flexible financial product can be customized according to the borrower’s requirements.
4. Peer-to-Peer (P2P) Lending
P2P lending is unsecured, where you borrow from another group or ‘peer’. One applies for a loan, and another of the investors pools the funds through the platform and lends it out.
How can you apply for a self-employed personal loan?
You must check the eligibility criteria for each personal loan to see if you are eligible. If you are still unsure, contacting that lender with any questions before submitting your application is essential. You must be ready with your paperwork.
Note that standard personal loans usually require a borrower to have at least two years of tax returns to qualify as self-employed. Some lenders may also require you to provide collateral for the loan. The personal loan application process for the self-employed usually goes something like this:
- Check out the loan types available from the lender and get the loan that fits your needs with competitive interest rates and low fees. You can talk to the lender to clear any doubts you may have.
- Apply for a personal loan or second mortgage loan, and submit all necessary documents
- Wait for approval. Depending on the lender, it may take a few hours to a week. Once approved, check the contract to make sure everything is as agreed and the interest rate is reasonable.
- Sign the loan and wait for the money to appear in your account.
- You are then ready to use the borrowed money to grow your business.
What kind of documents do you need?
Lenders typically require some or all of the following documents for self-employed applicants. Please note that you may not need some of these documents if you apply for a low-document loan.
1. Tax return
Prepare to file personal and business tax returns for the last two years. These will help you prove the income you listed on your application.
2. Annual accounts
It may also include an income statement to support your declared income.
3. Proof of rental income
If you receive an income from a rental property, you can declare this with an excerpt of the property or a copy of the completed rental agreement.
4. Notice of assessment
Ensure you have the latest Notice of Assessment (NOA) issued by the Australian Taxation Office (ATO). Displays tax information, such as income tax owed. Some lenders may require you to submit his NOA for the last two years.
5. Current bank statements
It includes bank statements showing savings and commerce. It may also include reports showing other outstanding caveat loans, personal loans or credit cards with other lenders.
6. Company-specific information
If you own your own business, be prepared to provide its ABN, address, and other information for the company.
7. ID Card
Depending on the lender, this could be an Australian driver’s license, passport, or proof of age. You must copy and fax your ID to the lender or scan and attach the digital file to your application.
How to compare self-employed personal loans?
With several options available in the financial market, comparison becomes the key to selecting the best personal loan. Some factors that you must consider for comparison are:
- Rate of interest
- Flexibility in repayment terms
- Additional fees involved
- Term of the loan
- Loan security
- Processing time
- Eligibility criteria
Summing it up
Many lenders and private financial institutions currently offer personal loans for self-employed people. Check the eligibility criteria and apply with all the lenders you think will offer the best deal. No one will deny lending to a financially stable and deserving self-employed.